Rising compliance costs hit locally focused banks

​​​​Study shows U.S. community bank compliance costs rose by nearly $1 billion in past two years.​​


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WASHINGTON, 12 October 2017 –  U.S. community bank compliance costs have increased by nearly $1 billion in the past two years, according to a new survey from the Federal Reserve and Conference of State Bank Supervisors. Economists at the St. Louis Fed estimate total 2016 compliance costs of $5.4 billion, or 24 percent of community bank net income. That is up from $5 billion in 2015 and $4.5 billion in 2014.

The survey said the costliest regulations are affiliated with the Bank Secrecy Act and TILA-RESPA, which respectively accounted for 22.3 per cent and 21.2 per cent of respondent banks’ compliance expenses. They were followed by deposit account compliance, qualified mortgage, Community Reinvestment Act, ability-to-repay, non-call report financial reporting, and Basel III capital regulations.

The survey of more than 600 community banks incorporates personnel, data-processing, legal, accounting and auditing, and consulting and advisory costs from call reports to develop the cost estimates. Released in conjunction with last week’s community bank research and policy conference, it offers further support for ICBA’s ongoing regulatory relief efforts.


Addressing the cost pressures: Proportionality or tiered regulation

The study comes at a time when WSBI-ESBG members continue to express a need for proportionate, tiered banking regulation to address rising costs of regulatory compliance. As acknowledged by European and international legislative bodies and standard setters (e.g. the Basel Committee, in its core principles for effective banking supervision, Principle 8), the proportionality principle is an instrument that aims to achieve the right balance between the objectives pursued by legislation and the methods used to achieve them.  WSBI, whose membership includes the Independent Community Bankers of America, argue that a balance must be ensured in order to prevent the financial system and its regulatory framework from creating disproportionate obligations to banks that do not adjust to the standards of size, complexity, business model, and cross-border activity; banks that due to their low-risk business model constitute stabilising factors in the financial system.


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Proportionality; Regulation